Public pensions offer many plusses to Pa. economy

The state Legislature needs to do what any successful business would do: Conduct a thorough cost/benefit analysis of the State Employees Retirement System and the Public School Employees Retirement System from the perspective of Pennsylvania’s taxpayers.

Few public sector retirees are getting huge pensions.

To date, the focus of the Legislature has been entirely on the costs of the pension systems or, more accurately, the fear of what those costs could be to taxpayers in the future. There has been limited mention of the benefits that these systems provide for all Pennsylvania citizens and the consequences to our economy and the welfare of all Pennsylvanians if the retirement systems for public employees would be eliminated.

It is important to understand that the average annual pension amount that retired public school employees receive is roughly $24,000 and retired state employees receive on average $24,500, hardly the exorbitant sums often reported in the media.

It also is important to understand what we do with our pensions. Simply, we spend our monthly allotments to pay living expenses just as those who are working use their paychecks to pay theirs. Certainly, we receive our pensions, but in reality, they flow through us and into the economy, thereby benefiting all businesses in Pennsylvania and their employees.

Annually, nearly $8 billion is flowing through us into Pennsylvania’s economy, which is six to seven times the amount that taxpayers are contributing to maintain these systems.

Another factor thus far ignored in the debate over public employee pension plans concerns the systems’ investments. Does anyone know how much the public employee retirement systems invest in businesses that employ substantial numbers of commonwealth citizens?

Businesses need capital to innovate, expand and create more jobs. The public employee retirement systems invest a substantial portion of this, more than $75 billion in Pennsylvania businesses. Could they invest more and create additional jobs in our state? We believe they can.

The House of Representatives has before it a resolution (House Resolution 649) that would direct the unbiased, bipartisan Joint State Government Commission to conduct a thorough economic impact study of both statewide public employee retirement systems, PSERS and SERS. The study would cost the state no additional funds to complete.
Plus, the study would provide taxpayers and their Harrisburg representatives with the facts they need to consider before making further changes to the retirement systems.

Numerous studies have been conducted at the national level concerning defined benefit pension plans such as we have for our public employees and defined contribution — 401(k)-type pension — plans that many corporations in the private sector established for their employees.

Each of these studies has concluded that 401(k) plans, initially designed to supplement defined benefit pension plans, not replace them, are failing to enable individuals to accumulate enough to meet their basic living expenses in retirement.

Stephen Vak

Is anyone looking ahead and considering what will happen to our economy when millions of Pennsylvanians with 401(k) plans as their primary source of retirement income retire and find that they cannot pay their basic living expenses? Does anyone really believe that adding hundreds of thousands of public employees to the growing number of people with insufficient retirement income is going to be helpful for Pennsylvania’s economy?

Several national studies have been published showing that defined benefits are less costly and more efficient than defined contribution plans. In 2008, the National Institute on Retirement Security documented in a study titled “A Better Bang for Your Buck: The Economic Efficiencies of Pensions” that for the same amount of contributions, a defined benefit plan can produce twice as high a benefit in retirement as individual 401(k) plans can.

Defined benefit plans earn higher rates of return on their pooled investments than individuals earn on their 401(k) investments, and the fees paid by members of defined benefit plans are one-fifth that paid by individuals with individual retirement savings plans.

There is a reason the Legislature has established and maintained these retirement systems for the last 95 years. It has nothing to do with greed or the power of public employee organizations. The truth is that these systems benefit all Pennsylvanians more than they cost its taxpayers.

They are a vital part of Pennsylvania’s economy. It remains to be seen whether the Legislature is really interested in doing what is best for Pennsylvania’s taxpayers or simply continuing to bash public employees and the benefits they receive.
STEPHEN M. VAK is a retired educator and school administrator from Westmoreland County. He is president of the Pennsylvania Association of School Retirees, an organization of nearly 50,000 retired teachers, administrators and school support personnel. 